How to get the best mortgage rates in the country? Buy new

As mortgage rates fall to near historic lows, some homebuilders are offering even lower interest rates in an effort to lure buyers during the slow spring selling season.

The latest sales promotion: Lennar Corp. is offering a fixed 3.625% rate over the life of a 30-year fixed rate mortgage. The deal is besting average rates that have fallen below 5% nationwide, but it comes as other builders are reporting mixed results from similar incentives.

Hovnanian Enterprises Inc.'s recent offer of a 3.99% rate sparked "underwhelming" interest from homebuyers, says Dan Klinger, president of the builder's mortgage operation. "It wasn't like we needed crowd control," Klinger says.

Earlier this year, luxury builder Toll Brothers Inc. was offering a 3.99% interest rate in many of its developments nationwide, but today that rate is no longer available nationally. Toll executives said that the promotion boosted traffic to its Web site, but the low rate alone hasn't been enough to break weak consumer confidence that is still weighing on the market.

Bargain mortgage rates are the latest sales strategy from builders struggling to sell homes. Mounting unemployment continues dogging the sector, because people without jobs, or those afraid of losing one, are unlikely to purchase, no matter how low the rate.

Since the downturn began, builders have tried everything from free tropical vacations to subsidized closing costs in order to move inventory. They then cut costs and even offered layaway plans for down payments.


For homebuyers, the low mortgage rates from the builders represent significant savings. But be wary of the fine print: Lennar is offering the 30-year rate "on select homes," and the loan amount cannot exceed $417,000. The minimum credit score is 700, which is a relatively high score in the current environment. In addition, it could be hard for buyers to come up with the minimum 10% down payment that Lennar requires to qualify for the 3.625% rate.

The builders' low rates may help first-time homebuyers, "but it's not going to goose the trade-up market," says Thomas Lawler, a housing economist. "That's because most trade-up buyers use the equity from their previous home for a down payment, and that equity often doesn't exist anymore."

KB Home is one builder that isn't chasing buyers with low mortgage rates, for now. Instead, the Los Angeles-based builder is focusing on offering smaller houses that are competitively priced with foreclosed houses. The strategy seems to be helping KB, which reported last month that its sales improved more than some analysts expected.

While some builders acknowledge that price cuts are the most effective way to move inventory, such cuts could cause buyers who have already bought a house at a higher price to walk away from their deposits.

It can be costly for builders to offer the low rates because the companies typically pay mortgage investors cash upfront in exchange for the low interest-rate loans. Federal regulations limit how much the builders can contribute to buy down mortgage rates. Currently, if a homebuyer puts down 5% or less, the builder is limited to incentives worth 3% of the sales price, Klinger says. For down payments of 10%, the limit climbs to 6%.


*This article was written by Michael Corkery and Dawn Wotapka of The Wall Street Journal.

Pending home sales rebound in April due to first-time buyers

Les Christie CNNMoney.com staff writer
On Tuesday June 2, 2009, 11:02 am EDT

The number of home sales contracts signed in April continued to bounce back from record lows hit last winter, according to a widely watched industry report. This is the third consecutive month of gains.

The Pending Home Sales Index from the National Association of Realtors rose 6.7% in April after jumping 3.2% in March. That was far above the forecasts of experts surveyed by Briefing.com, who predicted a 0.5% increase. The index was 3.3% higher than 12 months earlier.

Pending home sales are a forward-looking indicator since many of the contracts don't result in completed deals for many weeks or months.

"Housing affordability conditions have been at historic highs, but now the $8,000 first-time buyer tax credit is beginning to impact the market," said Lawrence Yun, NAR's chief economist in a prepared statement. "Since first-time buyers must finalize their purchase by Nov. 30 to get the credit, we expect greater activity in the months ahead, and that should spark more sales by repeat buyers."

The credit allows many homebuyers who have not owned a home in the past three years to claim up to an $8,000 refund on their taxes. The result has been a flood of first-time homebuyers even into lukewarm markets like Indianapolis, according to Glenn Bill, an agent there for Century 21 Sheetz.

"Our first-time homebuyer market is exploding," he said. "That's one good thing to come out of the stimulus package."

Low prices

Also driving sales is falling home prices. The national median home price is down more than 30%, according to the S&P/Case-Shiller Home Price Index. That has drawn many bargain-hunting homebuyers back into the market.

Mortgage rates in April were also very favorable, averaging well under 5% for a 30-year, fixed-rate loan. However, rates have risen recently.

All those factors have raised NAR's index of affordability to near record highs. It went up to 174.8 in April from an upwardly revised 171.9 in March, its second highest monthly reading ever. This index measures the relationship between home prices, mortgage interest rates and family income.

Regionally, the biggest improvement in home sales came in the Northeast, where they shot up 32.6%. Sales ramped up 9.8% in the Midwest, inched up 1.8% in the West and cooled 0.2% in the South.

Also boosting sales, according to NAR president Charles McMillan, a Coldwell Banker broker in Dallas, is that some states and non-profit agencies are helping first-time homebuyers come up with down payments.

"Some states are offering bridge loans that allow first-time buyers to use the tax credit for down payment and closing costs, but there are many other local government and nonprofit programs available to buyers, depending on location," he said.

The Department of Housing and Urban Development announced last week an additional program that enables homebuyers to add the tax credit to their down payments on FHA mortgages at closing, which should also help to enhance affordability and give a push to home sales.

Health Care Reform, Realized?

Health care costs more in the United States than it does anywhere else in the world. Many Americans don't have insurance at all. Others break their budgets paying for health care. A recent study found that millions of Americans actually put off care for chronic issues. If you haven't confronted this issue personally, chances are someone in your family or circle of friends has.

Against that backdrop, the health care industry surprised many who follow reform efforts this week by offering to put the brakes on health care costs over the next few years. The projected monetary impact: $2 trillion in savings over the next decade. The policy impact: While officials in Washington continue to weigh health care reform, they've now got a lot of financial wiggle room.

Or do they? There's nothing yet concrete about the $2 trillion figure from hospitals, insurers, doctors and pharmaceutical companies floated on Monday—many skeptics have a "I'll believe it when I see it" approach. And health care reform, despite strong support from the American public, is still a knotty, contentious issue, and there will be plenty of debating, bickering and deal-making if President Obama's goal of signing a bill later this year is to be realized.

Still, the gesture by the health care industry is significant.

As health care journalist Jonathan Cohn writes at The New Republic's "The Treatment" blog, these same industry groups fought health care reform the last time it was on the table, in 1994. Now they're sitting at that same table; as Cohn says, "This time, the industry groups aren't promising to control costs as an alternative to reform. They're promising to control costs as part of reform."

Indeed, 15 years ago, health care industry lobbyists rolled out their notorious "Harry and Louise" ads that featured a middle-class couple sitting at its kitchen table fretting over the idea of "government bureaucrats" meddling in their medical issues.

This time around, industry representatives are offering to help—not block—health care reform efforts. Is it because of a desire to help reform along, or because they see a train heading toward them and would rather climb aboard than get run over? Or a combination of both? And, if the result is a revamped system that offers more protection to more Americans, does it matter?

Oh, one more thing. For an idea of just how astronomically big the health care industry is in the United States: $2 trillion represents only about 1.5 percent of the health care spending growth rate in the coming 10 years.

****Provided courtesy of Bob@MSN Health